A Hybrid of Real Estate Investment Trust and Infrastructure Investment Trust, mezzanine funds. It will also provide non recourse project funding. The investors principal is also secured for providing added confidence. Its meant to operate in remote islands of Andaman & Nicobar Islands.

1. SMART CITY PROPOSAL
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24) SCP: Project Debt Funding – Infrastructure Investment Trust
a) Introduction to challenges ahead.
i) Infrastructure projects and initiatives are driven by debt up to 80% of the project
cost.
The debt tenures are 12 to 15 years and need to have a concession or levelised
tariff of around 25 to 30 years.
These projects if done in PPP mode, the Private Partner lends the expertise in
execution and operational credential.
The private partner would never lend its parent company bankability for raising
single project long tenure debt, they would prefer NON RECOURSE FUNDING
for the project.
ii) When we go for NON RECOURSE FUNDING, the project proponent need to
have clear vision of revenue for debt tenure (12 to 15 years) + a decade as these
are front loaded capital investments.
iii) There is also a need to secure the revenue stream assumed in Greenfield
projects through bankable purchase agreements /concession agreements with
bulk customer/ distribution entity.
iv) In the case of Brownfield retrofit projects, there has to be risk assessment and
cost of mitigation (re -insurance included) done to justify the untangled revenue
stream assumed.
v) Commercial and Development banks are have very high interest rates even for
priority sector like urban infrastructure. They also insist on balance sheet based
funding instead of non-recourse funding. Foreign debts need to be hedged
against currency fluctuations and it is not possible secure hedge greater than 3
years.
vi) Therefore, we need to create a SEBI Compliant Infrastructure Investment Trust
(InIT), called Smart City Investment Trust (SMIT).
vii)Smart City Investment Trust being a SEBI compliant Infrastructure Investment
Trust (In-IT), would be in a position to also act as a NODAL AGENCY (NA), co-
ordinating with different departments.
SMIT will be functionally a drawing and disbursement body for grants and
subsidy channelled through the Central Govt to execute the projects.
A SEBI compliant InIT is also allowed to get FDI as well as retail investments of
fixed coupon at the same time. It also has the option of exit for investors even
before listing of SMIT.
viii) Investors group consisting of citizens of the city can be the initial contributor of
equity of the SMIT. Once the projects and subprojects are taken up, it also
receives the grant approved by MOUD for smart cities initiative.
These projects CANNOT BE EXECUTED by conventional BOOT CONTRACT as
they need to be bundled by the SMIT as all components are not expected to
have lucrative revenue stream even though it may have positive revenue stream.
ix) Bundling is also required to execute priority sector with low revenue subprojects
before the lucrative one with less priority.
b) Learning from experience – Cochin International Airport Society (KIAS)
On 9th July 1993, Kochi International Airport Society (KIAS) was registered at
Cochin. (ER/311/93). The 1st Board Meeting of KIAS under the Founder Chairman
Shri. K. Karunakaran was held on 22nd July 1993. Shri. V. J. Kurian was the
Founder Managing Director of KIAS.
The Novel financing scheme proposed for the airport construction by Shri.V.J.
Kurian IAS is as follows:

2. SMART CITY PROPOSAL
Citizens Initiative for Smart Port Blair
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i) The project cost was initially estimated at Rs.200 Cr and Shri.V.J.Kurian
expected that the project would be financed mainly by the Non- Resident Indians
from Kerala working in various foreign countries
ii) It was assumed that at least 4,00,000 of them i.e. about 20% would participate in
a scheme for raising funds for the new airport. The main attraction being the
direct flight to and from their native land. Some special facilities were also
offered.
iii) Donor Scheme: Rs.25 Cr was expected to be mobilized as donation from the
industrial houses, well wishers, beneficiaries and users of the Airport and by way
of interest free loan from the service providers.
Donors would also be entitled to certain facilities like waiver of Entry fee; Special
lounge in the airport; separate check-in counter etc when the airport was opened.
iv) Interest Free Loan Scheme:
The scheme was to avail an interest free loan of Rs.5000/- (i.e. about 100
dollars) from a period of 5-1/2 years from individuals.
Kissan Vikas Patra (a savings scheme of Govt. of India, in which the deposit
amount doubles itself in 5-1/2 years was proposed to be used.
• When a person provides an interest free loan of Rs.5000/-., KIAS will
purchase Kissan Vikas Patra (KVP) worth Rs.2,500/- in his name.
• The amount would double itself in 5-1/2 years and the lender will get his
capital back but without interest on maturity.
• If 4,00,000 people provided a loan of Rs.Rs.5000/-, the society would get
Rs.200 Cr in cash and would have spent Rs.100 Cr for the purchase of
Kissan Vikas Patra.
v) Govt .of India reimburses 75% of the amount collected as KVP scheme to the
respective states as loans at concessional rates of interest. Hence an amount of
Rs.75 Cr was expected to be handed over to KIAS as loan which would be
repaid when the incomes accrue from the project on the commissioning of the
airport project. Thus the entire Rs.200 Cr could be funded.
• 303 Donors responded to the project and offered Rs.2.15 Cr for the Airport
Development.
• 2828 persons subscribed to the Interest Free Loan Scheme which collected
Rs.2.32 Cr for the airport project.
• Even though the expected amount was Rs.200 Cr, project funding through
Donor Scheme and Interest Free Loan scheme was only Rs.4.47 Cr.
vi) KIAS provided all the providers of Interest free Loan with KVP for Rs.2500/-
which ensured that they got back the loan within the period fixed.
Moreover, CIAL also issued shares of CIAL for Rs.2500/- (without collecting
share application money) in the company.
Donors were made shareholders of CIAL and shares worth their donation were
issued to them, without collecting share application money. Donor cards were
also issued to them.
The amount collected through the above financing scheme fell short of the target.
However a project was initiated through the contribution from the beneficiaries of the
airport project and this was a path breaking effort in Indian Aviation history.
c) Smart City Investment Trust (SMIT)
i) Role –
SMIT will be functionally a drawing and disbursement body for grants and
subsidy channelled through the Central Govt to execute the projects.

3. SMART CITY PROPOSAL
Citizens Initiative for Smart Port Blair
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Port Blair based public sector units, co-operative, co-operative bank and private
sector CSR Funds would subscribe Balance amount.
The proposed holding of SMIT in the underlying assets shall be MORE THAN Rs
500 Cr and the offer size shall not be less then Rs 250 Cr. at the time of initial
offer of units.
The aggregate consolidated borrowing of the SMIT and the underlying SPVs
shall never exceed 49% of the value of SMIT assets.
SMIT would raise funds only through public issue of units; have a minimum 25%
public float and at least 20 investors.
SMIT would distribute not less than 90% of the net distributable cash flows,
subject to applicable laws, to the investors, at least on a half yearly basis.
SMIT would use the services of competent valuation expert, undertake a full
valuation on a yearly basis and updating of the same on a half-yearly basis and
declare NAV within 15 days from the date of such valuation/updating.
SMIT will invest at least 80% of the value of the assets in the completed and
revenue generating assets and balance 10% on PPP & Non PPP under
construction projects. For balance 10% of under construction project, SEBI
guidelines would be complied.
ii) SMIT Development Stages – Change in morphology
SMIT
Development
Stage
InvIT Take-off /
Project Pretakeoff
Project Take-off
to COD
Post COD &
Listing
InvIT Maturity
Parameter Privately Placed InITs
Investment > 10% in Projects under
construction
Public InITs
Investment >80% in Revenue
Generating Projects
Raising of
funds
• Listing is mandatory
• Funds to be raised by private placement
from institutional investors and body
corporate.
• lock-in restrictions for NRs investments .
• Foreign Investment shall be subject to
guidelines specified by RBI
• Listing is mandatory.
• No lock-in restrictions for investments by
NRs.
• Foreign Investment shall be subject to
guidelines specified by RBI.
• Listing conditions: Minimum public float -
25% of total outstanding units of InvIT
and units being offered by way of offer
document
Number Of
investors
Holding of each investor shall not be more than 25% of the units of the InvIT
Investment
Restrictions
– Asset
Types
• Cumulative project size • INR 500 Cr
• Initial Offer size • INR 250 Cr
• Can invest in under construction projects • To invest maximum of 10% in under
construction
• Eligible infrastructure projects
Investment
conditions
• No investment conditions prescribed • 80% or more should be in completed
and revenue generating projects.
• Balance 20% or less can be invested in
other specified investments
Leverage
limits
• Maximum borrowings and deferred payments net of cash and cash equivalents - less
than 49% of the value of the InvIT assets
Price of
units
of InvIT
• Through book building or any other process in accordance with the guidelines issued by
the Board
Number Of
investors
• Minimum 5 and maximum 1000
members.
• Minimum 20 and no limits to maximum
number of members.
• Holding of each investor shall not be more than 25% of the units of the InvIT

4. SMART CITY PROPOSAL
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iii)SMIT - Source of Fund
SMIT is going to be a Mezzanine Fund, similar to ICICI Venture's Mezzanine
Fund. It is the first fund in India to focus on mezzanine finance opportunities.
Mezzanine financing is used mainly for Asset-backed businesses such as real
estate, infrastructure or equity backed financing
Mezzanine finance typically is a structured debt-like instrument, earning high
yields, through a combination of cash coupon and terminal yield and/or equity-
linked components, such as warrants and optionally convertibles.
Mezzanine finance often bridges the financing gap in an Infrastructure SPV's
capital structure and occupies a place between senior debt and equity, both in
security and total returns.
It offers flexibility to meet both the investor's and Infrastructure SPV's
requirements and also provides medium to long term capital without significant
ownership dilution.
Probable sources of fund for the mezzanine are –
• Equity / VGF/ Grant ; MOUD; Govt of India under Smart Cities Initiative =
Rs.300 Cr [ Formation of SMIT] + Rs 200 Cr [ over 3 years, proportional to
work progress of SPV’s] = Rs.500 Cr .
• Secured Crowd Funded Equity (Scheme A)44
from residents of A & N
Islands (Refer footnote for details) = Rs 100 Cr
• Secured Crowd Funded Equity (Scheme B) from Limited liability
partnerships (LLP) or Trusts started by Indian Citizens who are not residents
of A & N Islands.
These LLP or Trusts would have a resident of A & N Islands as a minority
partner / member.
The prospectus and operational principles of the equity will be same as that of
Secured Crowd Funded Equity (Scheme A)
Total size of Secured Crowd Funded Equity (Scheme B) will be between Rs
360 Cr to Rs 600 Cr.
• Debt (Scheme A) from NBFC, Indian Financial Institutions, Insurance
Companies, Indian Commercial banks.
The Bundled Rate of interest will be 1 % less or at par with SBI FD/ STDR
Rates. The same would be lent to Smart City Initiative Projects SPV’s working
capital requirements at -2% of SBI prime lending rate.
An expected spread of around > 2% is going to take care of the SMIT’s
monthly overheads and annual CSR commitments.
44
It will be similar to “Interest Free Loan Scheme” used for fund raising in development of Cochin International Airport Ltd
in the year 1993.
The Crowd Funded Equity is a loan to SMIT by residents of Port Blair in multiples of Rs 10000/-. It will be an interest
free loan of Rs.10000/- for a period of 102 Months.
SMIT would procure Kisan Vikas Patra of Rs 5000/- in the name of individual islander, that doubles up after a tenure of
100 Months. The certificates can only be encashed in event of the death of the holder or forfeiture by a pledge or on the
order of the courts.
Though Kisan Vikas Patra does not offer any income tax benefits to the investor (SMIT) however, withdrawals (Doners)
are exempted from Tax Deduction at Source (TDS) upon maturity.
Donors would be made shareholders of SMIT and shares worth their donation would be issued to them, without
collecting share application money. Max no of investors required to raise Rs 100 Cr will be around 1 lakh. These one
lakh investor’s principal is secured by Kisan Vikas Patra, and he also gets the benefit of earnings from the Mezzanine
Fund.

5. SMART CITY PROPOSAL
Citizens Initiative for Smart Port Blair
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Though the prospectus and operational parameters would be finalised with
investors at the time of formation of SMIT, actual draw down will happen only
after commercial operation date of SPV’s.
The investor would be made share holders of SMIT.
The assets of the SPV receiving debt would have to create charge in favour of
SMIT.
• Debt (Scheme B) in Indian Rupee.
Foreign Financial institutions; Foreign Commercial banks providing the
financial support / suppliers credit to the Swiss Challenge Bidders/ BOOT
Contractors/ system integrators.
The Foreign Currency Debts post hedge must have Bundled Rate of interest 1
% less or at par with SBI FD/ STDR Rates. The same would be lent to Smart
City Initiative Projects SPV’s working capital requirements at -2% of SBI prime
lending rate.
An expected spread of around > 2% is going to take care of the SMIT’s
monthly overheads and annual CSR commitments.
The investor would be made share holders of SMIT.
The assets of the SPV receiving debt would have to create charge in favour of
SMIT.
The size of investment would be in the range of Rs 600 Cr to Rs 1200 Cr,
depending on the equity structure of the SPV.
iv)Probable size of Mezzanine Fund
• Gross Equity – Rs 960 Cr (Minimum);. Rs 1200 Cr (Maximum);
• Net Equity available for deployment with fund manager after investment in
Kisan Vikas Patra – Rs 730 Cr (Minimum);. Rs 850 Cr (Maximum);
• Debt (Scheme B) in Indian Rupee – Rs 1200 Cr.
• Working Capital Loan for payment of running bill of works under execution =
Rs 300 Cr.
v) Benefits to Project Development SPV
• The Project Development SPV, executing the project would complete the
financial closure at the earliest.
• The bundled rate of interest would be less than SBI prime lending rate.
• Project Development SPV secures Non Recourse Funding for the project
even when the PRIVATE PARTNER [Technology/ Project execution partner]
though strong and doesn’t want project exposure affecting its bankability.
• Some times the value of tangible assets transferred by the PUBLIC
PARTNER to the Project SPV might be substantial in land intensive realty
projects.
Land being a scarce commodity, the PUBLIC PARTNER is expected to retain
administrative control over land use even after completion of concession
period even though the operational control of the project remains with the
PRIVATE PARTNER.
FFI / NBFC to provide suppliers credit to the project on behalf of the PRIVATE
PARTNER invests in the SMIT.
SMIT then provides the project debt.
If the FFI/ NBFC brought in by the PRIVATE partner want to quit the project,
he can exit the SMIT even before its listing.

6. SMART CITY PROPOSAL
Citizens Initiative for Smart Port Blair
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• Similarly FFI/ NBFC can assist / provide the PRIVATE PARTNER an exit
route when it fails to execute project on time due to non force majeure
conditions, by purchasing PRIVATE PARTNERS equity in the SPV.
• Prevents hostile takeover of the assets by competition and or liquidation in the
event of default is in control.
vi)Benefits to Investors
• Direct benefits to residents of A & N islands as they get opportunity to invest
in high yield SMIT, where principal is secured, without direct risks associated
with project/ product development. The assets are well diversified and the
principal money is secured by Kisan Vikas Patra.
• Indirect benefits to residents of A & N islands who become minority partner /
member of LLP/Trust owned by non resident citizens of India.
This will be similar to business practice in MENA where a resident Arab is
sleeping partner of an LLP. It’s a practice for promotion of extended
participation of resident islanders in the development activity thorough
financial inclusion.
Objective of SMART City Initiative of MOUD for inclusion of residents are met.
• The assets owned by multiple projects SPV’s gets bundled up when charge is
created in favour of SMIT. Bundling of assets diversify and reduce risks
associated with individual Project Development SPV.